Free Trial


By William Sokolis
     CHICAGO (MNI) - 
Tsy firmer, off late Asia session highs on decent volume (TYZ w/510k), 10Y Yld
2.035%. EGBs firmer, sovereign spds wider vs. Bunds, following ECB QE-taper
chatter overnight 
- ECB member, Liikanen said ECB decisions could be taken in Dec. Equities weaker
(emini -9.00, 2455.75), gold firmer (+5.28, 1354.57), oil little weaker (WTI
-0.17, 48.92).
- Asia, early safe-haven bid amid ongoing N Korea tensions, concern over
Hurricane Irma, not expected to make Fla landfall until late Sat/early Sun.
Sources reported regional bank buying Tsys cash and futures, short covering,
prop and real$ buying 10s.
- London, Tsys spiked higher ahead the London open, Tsys futures drew fast money
buying in intermediates. Sources reported credit tied buying, MBS-tied buying in
cash 10s, various buy stops triggered.
- Swaps, spds running mixed, spd curve unwinding a portion of week's flattening,
modest receivers and payer unwinds in 2s and 5s, light deal-tied flow after
heavy issuance this week tops $55B over 3 sessions.
- Eurodollars,firmer, middle O/N range, good volume, Dec hike% down to 18.0.
Gilts are trading modestly lower ahead of NY session with the short-end seen
leading the underperformance and therefore bear flattening the curve. Price seen
weighed by a Reuters ECB sources story saying that the central Bank discussed
four options for QE including cutting monthly purchases to E40bln or even E20bln
and extending it by 6 or 9-months.
- 2-yr Gilt yield is +2.9bp at 0.174%, 5-yr +2.8bp at 0.410%, 10-yr +1.9bp at
0.982% and 30-yr +2.0bp at 1.648% according to Tradeweb. 
- Earlier, Gilts opened slightly higher, but very quickly reversed gains and
dipped lower as markets digested ECB Draghi comments which where deemed dovish
and overnight comments from Fed Dudley, Mester and George calling for another
rate hike this year.
- There was little to no reaction to a raft of UK data that showed a smaller
than expected trade balance deficit, higher than expected pick-up in
manufacturing production, but a sharp contraction in UK construction output.
- Majority if swap spreads are tighter with the 15-yr seen leading the way at
-3.3bp. While UK breakevens are mixed with 5-yr +0.5bp but 10s and 30s unch.
Bund yields are currently 1bp higher on the day at 0.318%. What looked like
being a quiet session was turned into disarray when ECB member, Liikanen spoke
to say that some ECB decisions could be taken in December and soon after a
Reuters ECB-source story highlighted that four QE scenarios were discussed
including a cut to E20 per month.
- A E20bln option is a deeper cut than many expect, although it cannot be a
surprise that more aggressive options were discussed than the standard E20bln
reduction, particularly if the QE programme is extended to 9 months or longer. 
- The Reuters story carried peripheral spreads much wider, hurting Spain
slightly more than BTPs. The 10Y Bund-Bonos spread is 4bp wider at 122.7bp. 
- With all the talk of QE in Europe today the EURUSD 5Y cross currency basis
swap has moved 2bp higher to 34.8bp. At the margin, and assuming no other
changes in credit spreads, this would help choke off some of the recently heavy
reverse Yankee issuance.
- Data was second tier, headlined by some weak Spanish IP data but French IP
that was in line with consensus.
--MNI Chicago Bureau; tel: +1 312-431-0089; email:

To read the full story



MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.